Garth Rossiter
Small businesses are the driving force behind the South African economy, and they will be eagerly listening to next week’s Budget Speech. They want to hear how they will be meaningfully empowered to succeed this year.
Looking at the turnover data and cashflow insights that Lula has access to, this sector is clearly under immense pressure.
Our latest data shows that South African SMEs are facing immense pressure with a 50% drop in turnover year-on-year. The highest interest rates in more than 15 years have restricted consumers’ ability to spend and this has had a massive impact on turnover across all industries.
This has resulted in the South African economy showing almost no growth in 2024, and actually shrinking in the third quarter. This decline is not just a statistic; it's a stark reality that's pushing many business owners to their limits, forcing them to make tough decisions daily just to keep the lights on.
Despite some positive changes in the macroeconomic environment in the past year, like increased governmental stability, and a more reliable electricity supply, business owners striving to maintain operations are experiencing reduced cash flow.
When President Cyril Ramaphosa delivered his State of the Nation Address (Sona) a few days ago, he offered some encouraging commitments on SME funding, venture capital, and the easing of business barriers in the informal sector. These are key drivers of real economic growth, but the Sona was lacking in detail.
It would be a welcome move if the Finance Minister would provide greater clarity on these commitments by filling in the blanks.
We have heard the same story year after year. It’s not a secret that SMEs are the lifeblood of the country, employing between 50% to 60% of the country's workforce and contributing around 34% to the GDP.
If the government were serious about unemployment, I would expect them to present a clear plan in this budget on how they intend to make life easier for SMEs. Including, how they are going to remove red-tape and regulatory burdens to allow businesses to operate more effectively. Instead of government trying to create public sector employment (using tax-payer money) and adding to inefficiency, they should rather leverage the enormous potential of our small businesses and entrepreneurs.
The government doesn’t need to create the jobs themselves; the government needs to focus on the simple things, and the jobs will be created as a result: this means providing reliable electricity and water, good infrastructure and efficient ports. South African ports are ranked among the worst in the world and this is disastrous for any importer or exporter. It’s not complex, but if they get the basics right, the jobs will follow (and, as an added benefit, successful businesses will add to government’s coffers through paying corporate tax)!
The Budget Speech can play a major part in assuring SMEs that the government is committed to getting the basics right. If they provide reliable energy, transport, security and water, the private sector will create jobs and drive growth.
Small businesses depend on efficient transport networks—ports, roads, and rail—to trade. Hopefully, the Budget Speech will bring much-needed clarity on how SMEs will be empowered in the year ahead.
Garth Rossiter is the chief risk officer for SME financial services provider Lula.
BUSINESS REPORT